Tax Benefits of Self Invested Personal Pensions (SIPP)

SIPP

SIPP or Self Invested Personal Pensions are pensions that allow people to make their own decisions on their investment plans. Investments made can take a downward move as well upward so that you can get less than the amount you invest. The rules keep changing from time to time. The below rules are for those who are planning to apply currently. Normally one can access the money from the age 55 (57 from 2028). The relief on tax whatever you can get will depend on the circumstances. If you need any personal advice then contact professional in the field who can help you out in making correct decisions.

Contract-based schemes

Self-invested personal pensions

A wide range of permitted investment plans are offered by self invested personal pensions.

How self-invested personal pensions work

Self-invested personal pensions (SIPPs) belong to a type of personal pension that are a contract between the pension provider and pension requester. But, a wide investment options are available with SIPP to offer than the ones that are usually available for group personal pensions or personal pensions. The wider options will qualify you to invest in a broad choice of assets, which will include:

• Collective investments (like unit trusts and OEICs)
• Investment trusts
• Land and property (but mostly not residential properties) insurance bonds.
• Quoted UK and overseas stocks/shares
• Unlisted shares

A SIPP can always borrow some money to make purchase of some investments. As an example, to partially fund the buying of a property, a SIPP can increase the mortgage. Properties purchased this way should usually be rented out and the earnings coming from rentals that are received by the SIPP could be used in helping the mortgage repayments and the property functioning costs.

You are not allowed to invest in the whole range of permissible investments by all SIPPs. Special investments (like property) held by SIPPs may be responsible to pay charges higher than plans that has majority investments.

Contributions

You employer may decide whether or not to contribute to your SIPP, however, there is not compulsion on him to do that. If the employer contributes to your SIPP, he will expect you too to make contributions, such as my identifying your contributions. SIPPs ate portable and flexible so there not much concern about continuing it as even if you change your job or stop working, you can still continue contributing to the SIPP plan. Also, in case of new employer, they may also choose to contribute to it. If you are changing your job then inform the pension provider so that he can help and ensure you that your contributions are continued (just in case if you previous employer was making contributions in your SIPP schemes on your behalf).

After 2006, no restriction are made on the number of different pension plans you hold, however the limit is on the total contribution amount that are paid by you across all pension schemes every year, if you are entitled for tax reliefs on your pension contributions.

Drawing pension benefits

The value of retirement benefits from SIPPs which are money purchase schemes are determined by:

• Contribution amounts made in favour o SIPP pensions scheme.
• The duration spent on each contribution invested by the members, the growth of investment over this period; and
• Charge levels

In the present legislation, you can start drawing benefits for retirement from the age of 55 and this will not make you stop your work to draw benefits.

25% of the total accumulated fund can be taken out in lump sum as tax free cash along with the balance utilised to given an income.

The income amount is based on the options you choose. This also comprises the earning that will be continuously paid to the dependent in the event of member’s death, every year income increases to make up for the outcomes of inflation and the regularity of income in which it is paid.

This income on retirement can be provided in various ways, which include withdrawing an annuity and income drawdown. Pensions paid are taxable hence are liable to incomes taxes, whereas contribution done towards National Insurance are not liable to taxes.

If you have been a part of pension schemes earlier and have contributed to them then there is no doubt that you have reserved benefits from those schemes. So, you may wish to consider transferring the value of your old pension schemes to new ones. You can take professional help if you find it difficult to transfer.

A SIPP is believed to be one of the most tax-efficient options of investments for retirement. Whereas traditional pension schemes generally restrict the investment options to a shorter listing of funds, which are usually operated by the company’s own fun managers. But SIPP allows you to investment anywhere you wish to invent and also gives you freedom to choose your own investment plans.

Similar to all pension schemes, SIPP also offers up to 45% relief on tax where contributions are made and there is no UK income tax or capital gain tax that has to be paid. The benefits from tax are based on the circumstances of individuals and the tax rules can change as per the Government’s guidelines.

The best part is now you can purchase your SIPP online that allows you to buy and sell investments anytime and from anywhere just at the click of a mouse. And the pension helpdesks are available 6 days a week to provide you support as and when you need.

SIPP – where you can invest

The Vantage SIPP allows you to invest anywhere you wish to invest.

Investment Types	Vantage SIPP	Personal pension
Funds (unit trusts and OEICs)
Investment trusts
Insurance company funds
Individual UK shares
Overseas shares e.g. US or European shares
Bonds, gilts and PIBS
Exchange traded funds (ETFs)
Cash

SIPP after retirement

As you reach 55th year of your age (57 from 2028) you will be entitled to withdraw your funds, usually up to 25% tax free and the remaining will be taxed according to the income.

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